Everything about whistleblowers, of interest to whistleblowers and in support of whistleblowers.

Government Incompentence and Corruption

November 14, 2010

This was sent in today by a reader. Thank you Old Navy Man, again. -GFS

G. Florence

Federal government agency officials are going to do everything they can to ensure that these Inspector General reports are marginalized, or that they never come to the attention of the taxpaying public. More times than not, these cases involve the misconduct of federal officials, acts of retaliation against whistleblowers trying to do the right thing, and the fraud and the waste and the abuse of taxpayer dollars. Cover up and minimization of Inspector General investigations within the Department of Defense is rampant. But don’t take my word for it, check the case statistics!

An Old Navy Man

Watch Blog

POGO: The Case of the Missing Inspector General Reports

Posted at 10:28 am, November 4th, 2010

By Michael Smallberg, (cross-posted with the Project On Government Oversight)

Inspector General (IG) investigations expose some of the most egregious examples of misconduct by federal officials—everything from whistleblower retaliation to the abuse of taxpayer dollars—and the public has every right to see the (non-classified, non-redacted) results of these investigations. Yet in many cases, agencies have been known to over-redact, delay, or completely block the release of IG investigative reports. As we discussed in our 2008 report on IG independence, restricting public access to these reports undermines the important work performed by IGs, and creates a significant barrier to holding agency officials accountable.

A few weeks ago, Senators Charles Grassley (R-IA) and Tom Coburn (R-OK) released letters from 13 IGs describing how their agencies have interfered with investigations. Among other things, the senators asked the IGs to provide “biannual reports on all closed investigations, evaluations, and audits conducted by your office that were not disclosed to the public.”

As the senators continue their review, we hope they take a close look at the Securities and Exchange Commission (SEC), which has a troubling history of withholding records from the public, including investigative reports issued by the IG.

On the SEC IG’s website, you won’t find any investigative reports issued prior to 2009, and there are only eight reports posted since then. Yet the IG’s semiannual reports to Congress describe dozens of investigative reports that have been issued to SEC management over the past two years.

To be fair, most of the SEC IG’s audit and evaluation reports dating back to 1994 have been posted online. But when it comes to investigative reports—in which the OIG’s Office of Investigations looks into “allegations of violations of statutes, rules and regulations, and other misconduct by Commission staff and contractors—very few have ever been released to the public.

After reviewing the IG’s semiannual reports, we’ve counted at least 27 investigative reports issued since 2009 that have not been posted online. These reports cover everything from insider trading by SEC employees to botched investigations of fraudulent companies. There are at least two reports—one on the SEC’s bungled investigation of Allied Capital, and one on allegations of whistleblower retaliation at the SEC’s Ft. Worth Regional Office—that have been redacted and released, but are nowhere to be found on the SEC or IG’s websites.

Even when the IG’s reports are released to the public, the SEC can still diminish their impact. In the case of the Allied report, for example, the SEC redacted the name of the official who became a registered lobbyist for Allied after he left the SEC and illegally attempted to access hedge fund manager David Einhorn’s telephone records, even though his name had already been disclosed in Einhorn’s book and various media reports.*

The SEC also has a troubling history of releasing IG reports on slow news days. As reported by the AP, the IG identified this problem in its latest report on the timing of the SEC’s charges filed against Goldman Sachs (the IG was investigating whether the timing was politically motivated or intended to overshadow the release of another IG report on the SEC’s botched investigation of the Stanford Ponzi scheme):

[SEC Office of General Counsel Attorney] sent an email to a personal friend on the day that the Goldman action was announced and the OIG Stanford Report was released, stating about these two matters, “What a coincidence that those two stories came out today. ”

…These suspicions were likely fueled by the recent history of the SEC releasing OIG reports that criticized the agency on “slow” news days… The SEC released the OIG’s 457-page Report of Investigation (“ROI”) concerning the failure of the SEC to uncover Bernard Madoff’s Ponzi Scheme after 5:00 p.m. on September 4, 2009, the Friday before a three-day holiday weekend….The SEC then released the hundreds of exhibits supporting the OIG’s ROI concerning Madoff late on Friday, October 30, 2009.

…In addition, the OIG ROI concerning the SEC’s failure to vigorously pursue Enforcement action against W. Holding Company, Inc., and Bear Sterns & Co., Inc., was made public on Friday, October 10, 2008….Consistent with this pattern, on the same Friday that the OIG Stanford Report was publicly released and the Goldman action was announced, April 16, 2010, the SEC also publicly released the OIG’s ROI concerning the SEC’s failure to timely investigate allegations of financial fraud at Metromedia International Group, Inc., which had been submitted to the SEC by the OIG almost two months earlier.

As the report suggests, it’s the agency—specifically, the Office of General Counsel—that’s in charge of redacting IG investigative reports, and the reports can only be released through a vote by the SEC commissioners. The IG elaborated on this issue at a September hearing before the Senate Banking Committee, stating that his office does not have the authority to make decisions on nonpublic information by itself, even though it has asked for such authority.

In recent testimony before the House Financial Services Committee, POGO’s Angela Canterbury recommended that “[d]eterminations of FOIA exemption applicability to OIG reports, particularly regarding investigations, should be independently reviewed by the FOIA office or a FOIA officer within the OIG, not by the Chair or OGC.”

We’re hopeful that the next Congress will be receptive to strengthening IG offices across the government.

A reader sent this in today. Very interesting and troubling. As those of you know who visit here often, forced overtime is not unusual in the government, (federal or state in some cases). Increasing statistical demands and unethical management decisions to pressure employees to accomplish unrealistic work-loads and assignments in the 8 hour workday/40 hour work week have helped to create this mess. And it doesn’t get straightened out because of broken oversight, arrogant and incompetent management, and fearful, intimidated employees who live in mortal fear of losing their jobs. If any of you have stories to share, please contact me. –GFS

G. Florence

It’s not just state fairs, wage theft is occurring within the federal government too. I believe that the federal government should be the model for the rest of the country. It is not. But don’t take my word, check it out for yourself. Ask some of your federal government sources. Are they getting paid for all the hours that they work? I believe their answers may surprise you.

Kim Bobo of Interfaith Worker Justice speaks at a rally. (Photo: carlosjwj)Activists in more than 30 cities, organized by Interfaith Workers Justice and backed by labor groups, are staging a National Day of Action Against Wage Theft on November 18. "As the crisis for working families in the economy has deepened, so too has the crisis of wage theft," says Interfaith Worker Justice (IWJ) Executive Director Kim Bobo, perhaps the country's leading reformer addressing the ongoing scandal.

As much as $19 billion is stolen from American workers annually in unpaid overtime and minimum wage violations and, in some cases, through the human trafficking of legal immigrant workers. The latest case to come to light involves alleged horrendous conditions for immigrant workers reportedly hoodwinked in Mexico by a food services contractor for the New York State Fair and kept in near-slavery conditions of $2 an hour.

Indeed, the scandal surfaced when some of these legal guest workers showed up several weeks ago at a Syracuse area clinic, severely dehydrated and malnourished after allegedly being kept in virtual imprisonment in a trailer at the fair and at other locations; they were reportedly being denied thousands of dollars in legal wages owed them while working about 100 hours a week at fairs for months, according to legal filings and Danny Postel, communications coordinator for Interfaith Worker Justice.

"It's one of the most shocking cases of wage theft," Postel says.

The contractor, Pantelis Karageorgis, is the target of a labor standards class-action lawsuit filed last month by Farmworker Legal Services and a Labor Department investigation. But criminal charges by the U.S. Attorney's office have been dropped— "dismissed without prejudice"—and instead a modest settlement involving some back payment for the workers is being hammered out, knowledgeable sources say. In These Times spoke to the vendor's attorney Thursday seeking comment, but didn't hear back as of this writing.

While Obama's Labor Department under Hilda Solis has been winning high marks for adding new inspectors and its tough rhetoric, as well promoting outreach to workers victimized by wage theft, the on-the-ground enforcement remains uneven. One reason: the under-funded, outgunned Wage and Hour Division has a spotty record for cooperating with local advocates and workers' centers.

Kim Bobo says, in a tempered statement:

Interfaith Worker Justice is pleased with the new DOL leadership’s commitment to wage theft enforcement...Nonetheless, given the crisis of wage theft around the country, the partnerships between the Wage and Hour Division and local workers centers need to be strengthened, and a Wage and Hour Director should be nominated who can develop aggressive and creative approaches to stopping and deterring wage theft.

In fact, one activist notes in blunter terms "The Wage and Hour Divison is way behind OSHA in having a culture of aggressively targeted investigations."

Today's OSHA, of course, despite some new inspectors, is widely viewed as still failing to effectively protect workers. With just a thousand inspectors to oversee abuses and wage theft affecting over 20 million low-wage workers -- the primary but not the sole victim of a crime affecting white-collar workers, too -- the Wage and Hour Division hasn't been able to turn around yet the willful flouting of labor laws essentially encouraged by the Bush Labor Department's years of neglect. (The problem is only worsened by the grossly under-manned state labor agencies, which, a new study by Ohio Policy Matters finds, have less than 700 total investigators enforcing minimum wage and related labor laws in the over 40 states surveyed.)

Indeed, as Ted Smukler, IWJ's policy director sums up, "Secretary Solis is using her bully pulpit and hired 250 additional investigators, but Obama needs to get a Wage and Hour administrator confirmed [there's only an acting director] and they could be doing a lot more in enforcement."

Whatever the Department of Labor is attempting to do in this arena, it's clearly not had much of a deterrent effect. A new IWJ video underscores the scope of the continuing unstopped corporate crime wave (see above).

Cincinnati Workers Bilked Out of Overtime Pay?The failure to effectively enforce wage theft has allowed employers to underpay and stiff workers with impunity. For instance, one alleged scheme by owners of a Cincinnati animal hospital reportedly involved paying immigrant workers overtime, but then demanding the pay be returned to the owners in the form of cash kickbacks.

Daniel Sherman, the director of the Cincinnati Interfaith Workers Center, contends, "It's one of the most egregious examples of wage theft"—but hardly unique in his area. He contends, "The law is not very strong and it is not pursued."

As the Cincinnati Enquirer reported late last month:

Three undocumented workers say they were extorted into kicking back $24,000 in overtime pay to the owners of an animal hospital under the threat that if they didn't come up with the money they'd be deported.

Those workers and advocates for immigrants say the practice is not uncommon in Greater Cincinnati and is a growing problem.

The former employees of the Hamilton Avenue Animal Hospital and Clinic in Pleasant Run and the Sycamore Animal Hospital in Symmes Township say veterinarians Michael Cable and his daughter, Stephanie Cable, first accepted their payments in personal checks but later required them to pay in cash.

Two of the workers placed a hidden camera in the Sycamore Animal Hospital on Montgomery Road and filmed themselves three different times giving cash to Stephanie Cable. One worker rented the apartment above the animal hospital and installed the camera from there.

Jose Aguilar and another worker, Salvador Martinez, 20, gave the Enquirer the video, pay stubs and a series of canceled checks that had been deposited into the animal hospital's account at Huntington Bank...

The video provided by the workers shows three men paying Stephanie Cable cash.

"Hey, Steph - how much I need pay back for overtime this check?" asks Aguilar in the video.

In one scene, she takes the money from a man and quickly puts it in her back pocket....

But the attorney for the Cables, Steve Goodin, told In These Times, "The Cables have categorically denied that they were extorting or threatening to deport their employees." Because of pending investigations, he says, he can only say about the alleged labor law violations: "We're urging everyone not to rush to judgment," noting that there was a bomb threat aimed at the owners after the Enquirer story appeared.

Yet it's also clear the Cables are planning to mount an aggressive defense: they've already filed a criminal complaint with the county sheriff against the workers who arranged the filming for allegedly violating wiretapping and trespass laws, although Goodin concedes a criminal prosecution seems unlikely. They're also planning a civil suit on similar grounds. Still, he says of the owners, "They were friendly with these guys."

He also argues that an earlier 2007 settlement the Cables made with the Department of Labor for allegedly underpaying overtime to 19 former employees—in which they admitted no guilt but paid about $9,200—is completely unrelated to these latest violations.

Workers' Advocates: Employers Act With Near ImpunityWhatever the merits of the new charges against these owners, advocates at these privately-funded workers' centers often affiliated with IWJ, including Daniel Sherman in Cincinnati and Rebecca Fuentes in Syracuse, regularly field complaints from the victims of employers who routinely ignore labor laws with little fear of timely or effective punishment.

As one national activist told In These Times privately, the Department of Labor usually has to go to court to enforce its own regulations, and so "the smart [employers]" just wait for the interminable legal process to play itself out or get dropped altogether—assuming any enforcement efforts are even started.

As a result, Sherman and other advocates report, new abuses keep cropping up. In yet another case of labor trafficking, for example, he learned just last month about 12 immigrant laborers working about 120 hours a week for $1,000 a month each, housed at the warehouse where they worked—and who were essentially forced to sleep inside just four hours a night.

Sherman's organization only discovered the abuse after one worker jumped out of a warehouse window and escaped to a church for help. "The church called us," he says, and he in turn contacted the Department of Labor to pursue labor law violations-- and the FBI, to investigate human trafficking. But he's not confident that there will be any prosecutions for trafficking because the threatened and intimidated workers were theoretically free to leave.

But in another recent case, Sherman says, the employer just pulled a gun on two immigrant workers who complained about not getting paid. No criminal or legal actions have yet been pursued because the families of the workers are too scared, he observes.

'Perfect Conditions' for 'Slave-Like Situations' at New York State FairThe allegations made against the New York food vendor illustrate some of the ways employers can purportedly intimidate and abuse workers. In a startling affidavit filed by a federal Immigration and Customs Enforcement ("ICE") agent that accompanied the arrest of Pantelis Karageorgis in September (again, the charges have been dropped at the request of the prosecutor), Special Agent Thomas Kirwin outlines some of the alleged tricks of the labor trafficking trade used against employees hungry for work. The agent's affidavit and the original class-action lawsuit filed by Nathaniel Charny as the lead counsel of Farmworkers Legal Services on behalf of four named workers and others paint quite an ugly picture.

And the local workers' rights advocate, Rebecca Fuentes, who helped discover and expose the alleged Syracuse worker abuse, points out, "The guest worker visa program is very flawed, and it ties workers to one employer. That creates perfect conditions for almost slave-like situations," like those facing the apparently starving New York State Fair workers. (She also claims that, at least in her region, the federal Department of Labor is more responsive than the state labor department, which dawdles for months in the face of serious wage theft complaints - a pattern afflicting many weak state labor departments.)

The food-stand employees were recruited this past summer in Mexico with allegedly "fraudulent" promises of a relatively well-paying job, complete with written contracts, as legal guest workers under the H-2B visa program. They were hired as workers in the Karageorgis firm's Greek food concession stands that accompanied some carnivals and fairs in the United States.

Starting in Buffalo in August, then moving to Syracuse, agent Kirwin reported, the workers arrived with no food or money, were allowed to get their meals solely by eating at the concessions stands only once or twice a day, and were housed in trailers on the fair sites, working 16 or more hours each day. "On the last day of the [Syracuse] fair, the employees worked 24 hours consecutively," he noted about the state government-sponsored fair. "At the conclusion of the fair in Syracuse, the defendant paid each of the employees $260."

Yet by some estimates, for the months of nonstop work at a promised $10.71 per hour and extra overtime pay, the workers actually should have each received closer to $30,000. But for approximately 280 hours of work in just a three-week period, each worker got a mere $360, Kirwin stated.

When the employees complained about not getting their full wages, Karageorgis allegedly made a variety of threats, including potentially firing them, cutting their pay even further, or having them deported—and barring them from ever working in the U.S. again. Kirwin added, "The defendant, who traveled with the Employees the entire time, routinely berated and sought to demean them, calling them, for example, `pussies' if they complained about illness or injury."

One of the sadder ironies of the entire case is that some of these victims, also cited in the civil suit, such as Adonai Vasquez, started working for the vendor, Peter's Fine Greek Food, Inc., as far back as July, 2008. But they kept returning on different work trips for as little as $1 or $2 an hour—despite the previously broken promises of $10 to $12 per hour in wages. This is the reality of the "race to the bottom" in the Wild West-style globalized economy: Immigrants are literally starving to work in the United States.

The still-pending civil suit filed in October alleges, "For a period at least as far back as six years from the date of commencement of this action, there have been hundreds of Mexican national treated in the same violative fashion in regards to the payment of wages."

At the same time, the lawsuit claims, "Upon information and belief, Defendants [Karageorgis and his firm], grossed more than $500,000 in the past fiscal year."

Even though one of Karegeorgis's lawyers, Dawn Cardi, was unable to comment as of this writing, the ICE agent's affidavit recounts Karageorgis's version of events. The Greek food entrepreneur explained his operation: his agents recruit workers in Mexico and he submits their legal paperwork to U.S. labor and immigration authorities. But he claimed to be surprised to learn that they were promised $10.71 an hour. He conceded to Kirwin he hadn't yet paid his workers in full, but intended to do so—while somehow asserting that none of them ever worked in Buffalo for him and thus they weren't owed money for that work. He also denied making any threats against his workers, except that he'd notify his attorney if they quit.

But the observant immigration agent also noticed that Karegeorgis wasn't short of cash at the time of his arrest. "He had in his pants' pockets three bulky wads of cash and also had a briefcase that he said contained money, the security of which he was concerned about," Kirwin noted dryly. Despite the defendant's claims, Kirwin added, the agent requested that the food merchant "be dealt with according to law."

So far, though, he seems unlikely to face any criminal prosecution.

Activists to Demand Reform Around CountryIt's small wonder, then, with employers apparently stealing wages with so much impunity, that a groundswell by activists is building to take action, even in a still-weakened regulatory climate. At a preview for next week's events, for instance, hundreds of workers and allies marched in Minneapolis last Saturday demanding fair wages, an end to wage theft and safe working conditions for retail cleaning workers at major stores, including Supervalu and Target.

The worsening economy makes it even easier to rip off workers desperate for work, the protesters declared (hat tip to Workday Minnesota). “Corporations are responsible for pitting cleaning companies against each other which results in plummeting wages and increased workloads,” said Veronica Mendez, an organizer with Center for Workers United in Struggle, a IWJ-affiliated labor-faith coalition. “The only way to stop this is for these retail chains to meet with workers to establish fair standards. These poor working conditions affect everyone in our communities..."

Interfaith Worker Justice and its allies have ambitious plans for its nationwide local protests next Thursday:

Events on the National Day of Action Against Wage Theft will include protests at businesses guilty of wage theft to demand back wages for workers and events at which political leaders, workers, faith leaders, community groups, and labor unions will present new initiatives to end wage theft.

In Houston, a worker center will release a local report on wage theft and will send a "Justice Bus" around the city to call attention to local businesses that steal their workers' wages. Other innovative local events include a text messaging campaign, a “Worst Employers” Awards ceremony, “Know Your Rights” workshops for workers, a jazz funeral for lost wages and a Thanksgiving-themed auction and a dramatization against wage theft in Memphis.

Yet the Republican take-over of the House and rising anti-union sentiment have already changed one of their primary legislative goals. The coalition's call for action includes this sweeping reform priority:

On September 29, Congressman Phil Hare (D-IL) introduced the Wage Theft Prevention and Community Partnership Act (H.R. 6268), which would authorize the U.S. Department of Labor (DOL) to establish a competitive grant program to prevent wage theft. The bill would expand the efforts of enforcement agencies and community organizations to educate workers about their rights and the remedies available to them, while educating employers about their responsibilities under the law.

"That's dead," one knowledgeable activist admitted. "He lost the election."

More spin-off from government revolving doors and politics. This is what happens when the politicians and the citizens of this country put their own personal interests and their greed ahead of the health and the security of this nation.

What we don’t want to understand; ultimately, we all lose.

An Old Navy Man

SUPER-SIZED PENSIONS, AND A DOOMSDAY SCENARIO

Posted: Friday, November 12 2010 at 06:00 am CT by Bob Sullivan

In New York, a 44-year-old firefighter retires with a $101,000 a year pension, for life. Near Chicago, a parks commissioner quits and begins collecting a $166,000 pension – a sum sweetened by $50,000 thanks to a one-time retirement year windfall of $270,000. And in California, a former city manager pulls down $500,000 in retirement checks every year.

As outrageous as those sunset stipends may seem, they are merely the most visible piece of what critics of generous government pensions say is a ticking time bomb of debt that is threatening to bankrupt a number of states by the end of the decade.

While the federal debt of $13.7 trillion raises issues of devalued currency, higher borrowing costs for Washington, D.C., and loss of international bargaining power, state debt – much of it driven by exploding pension costs – poses a more immediate risk to the U.S. economy, according to many experts.

Wall Street analyst Meredith Whitney correctly predicted the need for a government bailout of banks three years ago, so people listened in September when she forecast who will be next to beg for a federal bailout: States like California, New Jersey and Ohio. State and local governments have effectively run up huge credit card bills, and soon won’t even be able to make the minimum payments on that debt. What happens then? Middle America, Whitney predicted in a report called “Tragedy of the Commons,” might revolt at the idea at bailing out coastal states for years of mismanagement and overspending.

Crushing debts racked up by these and other states are obvious almost every budget year, when state government shutdowns are threatened and tax increases loom. But annual budget woes are a drop in the bucket compared to long-term obligations facing these states – particularly their promises to supply pensions and health care to millions of retired workers. Pension talk might not sound sexy, but it should: U.S. states already are short $1 trillion they should have set aside to pay retired workers, according to the Pew Center on the States. That hole could very well drive states to bankruptcy or federal bailout.

As documented in our continuing series on supersized government worker pay, granting supersized pensions seems irresponsible in light of this looming fiscal catastrophe. Yet, in California alone, nearly 10,000 retirees will get pension checks totaling at least $100,000 this year.

The economic struggles of the past decade lit the fuse for the pension fund time bomb. In 2000, half of the 50 states had enough money socked away to cover future pension costs, according to Pew. By 2008, only four states -- Florida, New York, Washington and Wisconsin -- could make that claim. The other 46 are potentially on the road to insolvency.

Joshua Rauh

Joshua Rauh, associate professor of finance at Northwestern University, estimates that 20 states will run out of pension money by 2025.

The pension doomsday clocks in Illinois and New Jersey will strike even sooner, in 2018, he said.

What happens then? In New Jersey, for example, the state is obligated to pay pensions out of the general fund when the pension fund runs dry. In 2018, the state will owe $14 billion in pension payouts, or one-third of the state's annual tax receipts. To put that in perspective, to plug a budget hole like that this year, the state would have to cut all education spending. That bears repeating: It would have to eliminate spending on every elementary school, high school and college from its budget.

That's why stories of $195,000 pensions, rampant double-dipping, workers collecting pensions on seven, eight or even nine government jobs, and other excesses seem so absurd.

And pension gamesmanship is routine around the country. For example, pension payments are often based on the employee’s salary in the final year on the job, or final three years. That formula is easily abused, a process sometimes called “back-ending.” A pension commission in New Jersey found one worker spent 24 years in public service earning less than $10,000, then one year as a prosecutor earning $141,000. That boosted his pension from $3,600 to $70,000 annually. The employee wasn't named.

“There's probably as many variations as you can imagine,” said Jack Dean, who runs the PensionTsunami.com website. “Just when I think that I've heard something amazing, I'll hear something more amazing. It goes on everywhere across the country. It’s human nature; if you can figure out a way to inflate your pension, you are going to do it. … People who make a career of it are making out like bandits.”

Another common pension abuse is “double-dipping” – a practice in which employees retire and start collecting their pension, then are rehired to perform their old job at their old salary. It’s a common practice for government workers around the country, despite many rules forbidding it. Workers often argue that they have earned their pension and their right to retire, and if they decide to work during retirement, they're entitled. But the logic there is deeply flawed, said Dean.

"Pensions were designed to make sure government workers were allowed to grow old with dignity, not to make them rich," he said.

The outrage, and the actuarial problem

In this series on super-sized government pay, we’ve already met Phoenix police chief/public safety manager Jack Harris, who’s become the nation’s poster child for “double-dipping.” He retired as chief in 2007 and began collecting a $90,000 pension. Two weeks later, he was hired for essentially the same job, retitled “public safety manager,” and granted a salary of $193,000. Harris attracted nationwide attention after a lawsuit was filed by conservative interest group Judicial Watch. The lawsuit claims the public safety manager’s job was manufactured expressly to circumvent both pension rules and a state law aimed at curbing the practice.

Peter Tom is a municipal compensation specialist who’s worked in New Jersey’s complicated government worker environment for three decades. New Jersey even has rules designed to enable double-dippers, he said. Yet, he’s seen all manner of pension-stuffing through the years.

“This would not be allowed in the private sector because pension committees are third party administrators who have fiduciary responsibilities,” Tom said.

While the outrage factor on six-figure pensions and lucrative loopholes is high, Tom also points to a more practical, actuarial problem: Pension recipients aren’t paying their fair share, creating unfunded liabilities. For example, he said, a worker who pays 5 percent of a $10,000 salary into the system for 24 years, then 5 percent of a $140,000 salary for one year, doesn’t cover the costs of a $70,000 pension.

"These loopholes create unfunded liabilities that have helped damage the pension pool.”," he said. "Pensioners are never asked to make up the difference.”

A Ponzi scheme?

In truth, pension systems rely on what might be considered an accounting trick, not unlike the trick which keeps the Social Security system afloat for now. While state workers contribute payments to the system – typically about 5 percent of their salary -- and those payments are matched by government employers -- about 10 percent -- those payments scarcely cover the eventual payouts.

“You can never pay enough to pay for your retirement,” Tom said.

In fact, "defined benefit" pension plans make no direct connection between the worker's contributions and the benefits enjoyed later. Pension systems hope for large investment gains during a worker's career – in many states the calculations project an annual return of around 8 percent, a fantasy -- but really rely on the payments of current workers to fund payouts to retired workers.

Just as pensions are a bit of an accounting trick (or a Ponzi scheme, some might argue), pension obligations do not appear on state balance sheets as debts. If they did – if states actually had to write down what they owe retirees going forward, and assume a modest return on investments -- the unfunded portion of the payments could be as high as $4.3 trillion, said Rauh, the Northwestern professor. That’s nearly a third of the federal debt, which currently stands at $13.7 trillion. The federal government’s massive debt steals headlines, vaults politicians to office and has its own Times Square clock, but at least Washington, D.C., can print money. Meanwhile, states are staring at a black mammoth black hole with seemingly no way to dig out.

While the contribution formulas have systematic flaws, their shortcomings are severely exacerbated by another simple math problem – life expectancy has jumped almost 10 years since 1960.

“Unions managed to lower or reduce the retirement age while increasing benefits in a period of history where people are living longer,” said Dean, the PensionTsunami.com webmaster. “So you begin seeing what the problem is.”

Dean’s website maintains a $100,000 club roster, listing pensioners who enjoy six-figure annual payouts. But life expectancy is forcing him to consider new list: the $1 million club, for retirees who will collect seven-figure pensions during their lifetime.

”We have a police chief who will pull in $5 million in California (before he dies),” he said. Defined contribution to the rescue?

Most pension reformers are calling for state governments to switch to a defined contribution system, similar to 401(k) plans many workers have. That would mean workers would only get what they put into the system -- combined with any employer cash contributions and supplemented by investment gains -- when they retire.

But while that is fiscally responsible from the government's point of view, a defined contribution plan is a meager replacement for a defined benefit plan. That’s why unions are putting up quite a fight against pension reform.

Here's a simple rule-of-thumb comparison.

A 30-year government worker with a final salary of $80,000 could expect an annual pension of roughly $55,000, or about $4,600 per month for life, under the current scheme.

To earn that kind of guaranteed monthly income, a 401(k) saver would need $1 million in their retirement account, assuming $100,000 in savings can generate $400 in monthly income.

While it's not impossible to grow a 401(k) to those lofty levels, it is rare. In fact, 50 percent of Americans who have 401(k) accounts have less than $35,000 in them. Contrast that with our 30-year government workers who can all expect predictable pension checks.

So expect a furious battle as state governments attempt to reign in pension costs.

It’s about power

But in the end, pensions are about power. Elected officials from local and state governments maintain power by doling out favors and perks, and there is no perk like a pension.

Next week, Tom will be our guide as we delve more deeply into particularly egregious forms of pension loopholes, such as a county sheriff who retired in 1999 but still holds his six-figure-salaried office, the judge with 11 state jobs and the convicted mayor with the $125,000 pension and multiple other sources of state income.

We’ll also find out just how emotional the tale of government pensions can be, as we meet a New Jersey sheriff who stormed a college classroom and forced a professor to apologize for calling him a double dipper in class.

“This problem is really the result of years of the public just not paying close attention, especially over the last decade,” said Dean, of PensionTsunami.com. “So now, this is a story that is going to keep on going and going.”

Have you been paying attention? Are there stories in your state of pension abuse? Share them below, or tell me privately at BobSullivan@feedback.msnbc.com

October 30, 2010

Here are some comments left on one of the articles I posted earlier today. You will want to check the original article and additional comments. See link at bottom of this post. And thanks again, Old Navy Man. GFS

G. Florence-

It’s not just ‘An Old Navy Man’ that believes there’s a problem. See comments below.

Good investigative reporting on the part of Mr. Schwellenbach!

An Old Navy Man

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Joe It is a shame that the only reason that DCAA gave away proposal audits under the stated PGI threshold is so that we can put more time in working paper documentation. Not that our audits will be any better or that we will question more cost. No, just the opposite. We gave away millions of dollars of proposal work just to have more time to document our work. Such as waste of effort. This is definately contrary to Secretary Gates efficiency initiative. I am dispoointed that Fitzgerald did not have a backbone and went along with AT&L on this one. Stephenson never would have given away work just to have more time for those picture perfect working papers. What's next, $500 million and $50 million. Before we know it, Fitzgerald will have each auditor completing only one audit per year. I imagine that Policy is already examining how to raise the desk review incurred cost threshold to $100 million per year. Here's a clue how to deal with the gap between the audit work that needs to be accomplished and the current funding, provide DCAA more funds. Simple, issue solved. DCAA saves dollar for dollar more than it costs, period. So why won't Comptroller Hale provide DCAA more money? Oh I get it, he does not want oversight of contractors and neither does our lobbyist Deputy Secretary of Defense. I get it now. We need a change of administration and fast!

Posted on: Oct 30, 2010 at 05:54 PM

Carol The blog comments are 100% on the mark. In essence, pricing evaluations by DCMA for FFP under $10 million and cost type over $100 million will become nothing more than a rate check. DCMA is not staffed to perform a full price analysis of proposals under these thresholds. This represents a high volume of proposals. Rather DCMA will call DCAA for the latest rates and that will be the extent of the price analysis. It will not matter than the rates are 2-3 years old or perhaps no rate information. The message was been sent by AT&L, pricing actions under these thresholds are immaterial and become a blank check for contractors. I am curious about the independence comment made by Frank. I thought that the Defense Business Board in its October 2008 report stated that DCAA should perform any audits it felt necessary regardless of the DPAP guidance, FAR, DFARS, CAS, etc. How can DPAP decide the audits to be performed by DCAA? This seems to be an independence issue. The PGI guidance was not revised due to a change in law or other legal statute. Perhaps Fitzgerald is confusing Army Audit with DCAA where in Army Audit the Secretary of the Army may decide the audits that are performed. But in DCAA, the responsibility is on the DCAA Director to decide the audits that are necessary, no one else has that responsibility. I believe we have a GAGAS noncompliance. POGO, could you research the independence issue. This could be very serious.

Posted on: Oct 30, 2010 at 08:02 AM

John Agree with Frank and Mike. The Pentagon has wanted DCAA to get out of the forward pricing audit business for years. Contracting officials want to place as much money on contract as possible and do not want to have to address audit findings while negotiating contracts. However, I would argue that the new thresholds really do not matter because many forward pricing reports are issued too late to be of use to the contracting officer and many others are never issued because the supervisor, manager, region, QA reviewers have an issue with the working papers such as the entrance conference was not thoroughly documented or the sample was too small. All the while, real dollars are wasted especially on FFP contracts. Assignments are cancelled all the time. I recall a time when the FAO had a prepare a detailed explanation for the region when it cancelled an assignment. Now we cancel more assignments that we complete. POGO, you should ask for the number of cancelled assignments for the last five years, you should see a significant increase in FY 2010. Not to mention the millions that have gone unaudited and thousands of audit hours wasted. I guess Army Audit has a very liberal cancellation policy.

Posted on: Oct 29, 2010 at 07:42 PM

Jan Here's the next scandle, DCAA spends twice as much to do 25%of the audits. Overpayments and fraud triple due to no oversight. GAO and IG find DCAA's audit working papers are perfect, but gig DCAA for performing marginal analytical procedures. Wake-up Fitzgerald, you have many hearings in your future so start practicing the opening statement on how the Pentagon made you do it and how important it is to ensure that all the i's are dotted and t's are crossed. Oh, and do not forget, you are responsible for DCAA and cannot use the Pentagon or anyone else as an excuse. The independence issue is squarely on you. Keep in mind that Under Secretary Hale and Deputy Lynn will not be around forever to protect you.

Posted on: Oct 29, 2010 at 07:01 PM

Mike This action is very short-sighted by Director Fitzgerald. The ratio of questioned cost to dollars examined on the smaller dollar pricing actions is generally greater than the larger dollars especially the fixed price effort. These are generally smaller, less experienced contractors that do not have adequate pricing systems in place and are not knowledgeable of the FAR and CAS. Last month my office issued a report on a FFP $8 million proposal. We questioned half of the proposed amount ($4 million) because the contractor charged all indirect costs to the Government contract and none to its commercial customers. Reason, the commercial customer would not pay for the indirect costs, but they tried to get the Government to pay it. The CO sustained 100% and reduced the negotiated price accordingly. DCMA does not know contractor accounting records at the level of detail as DCAA and would not have had this finding in their price evaluation. Result, $4 million down the drain. POGO stay with this one, it has scandle written all over it.

Posted on: Oct 29, 2010 at 06:10 PM

Frank It is an impairment to DCAA's independence for the Pentagon to dictate the audits that DCAA will perform. If there is a risk such as an inadequate estimating system, history of overbillings, or even fraud referrals, DCAA should be able to perform the pricing audits. This is just the Pentagon's way of reducing the oversight of contractors. DCMA is not equipped to handle the significant workload associated with pre-award pricing effort on cost-type contracts under $100 million and fixed-price under $10 million.

Here is another article and comment sent from a reader. Thank you again, Old Navy Man. And GFS

G. Florence-

Reduce government, and you reduce defense contractor oversight.

An Old Navy Man

WashingtonTechnology

DOD auditors raise the limit on what they'll examine

Watchdog group cries foul over what they see as reduced oversight

By Alice Lipowicz

Oct 29, 2010

The Defense Department has reduced the scope of contracts audited by the Defense Contract Audit Agency, according to a DCAA memo released today by the Project on Government Oversight, a watchdog group.

According to the memo, contracting officers' requests for DCAA reviews of contractor cost data must meet a threshold of $10 million for fixed-price proposals and $100 million for cost-type proposals, unless there are exceptional circumstances.

Previously, the threshold was $700,000 for fixed-price proposals and $10 million for cost-type proposals, POGO officials said in a post published on the organization's website.

Approximately $92 billion in annual DOD contracts will be affected by the new thresholds, POGO estimated, calling it a radical reduction in contract oversight by DCAA.

“POGO has long feared contractors and their government allies would block DCAA from exposing contractor ripoffs,” Nick Schwellenbach, POGO’s director of investigations, said today.“Why are billions of dollars being put at risk when [Defense] Secretary [Robert] Gates is demanding cost savings?”

The sudden moratorium on many foreclosures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty clouding their finances, according to lawyers who handle these cases.

Employees with security clearances are monitored by the government for financial problems that would make them vulnerable to bribery or blackmail. And with many financial companies adopting some form of foreclosure freeze in recent weeks, it's taking longer for some delinquent borrowers to resolve their mortgage cases and put their troubles behind them, the lawyers said.

"Resolving debt is more complicated when the lenders are in paralysis," said Dennis Sysko, a national security lawyer in Glen Burnie. "The longer it is unresolved, the longer the cloud remains."

Lawyers in the Washington area said they are starting to field inquiries about foreclosure delays from workers who have security clearances or are trying to get them. Many don't know whether they should be elated or concerned by the turn of events.

"I'm just really confused because nobody has made clear to me what this foreclosure delay means," said Brian Young, a federal employee from Capitol Heights.

Young bought his first home in October 2007 with a first and second mortgage from Bank of America. At the time, he had the interim secret clearance he needed to do his electrical engineering job at a Defense Department agency, he said. He applied for a permanent clearance soon thereafter.

When the permanent clearance did not come through as quickly as he'd hoped, Young said, his pay was cut, and he fell behind on his mortgage in August. He was engaged in talks with his lender to modify his loan when his security clearance was revoked. His supervisors suspended him from his job, citing him as a financial risk, mostly because of his mortgage problems, he said.

Young is appealing the decision. But as he waits, he's fallen further behind on his mortgage and other bills, including child support payments. Bank of America informed him that it would expedite foreclosure and seize his home, but then the lender suddenly announced a halt to all its foreclosure sales nationwide. This week, the bank said that it would restart foreclosures in some states, but not yet in the Washington region.

"This is just dragging everything out, and my credit keeps taking more hits," Young said. "If it helps me in some way, cool. But I just don't know if it does."

The moratorium comes to D.C.

Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes. The firm limited its freeze to the 23 states where lenders have to win a court order to initiate a foreclosure. Other major lenders, including J.P. Morgan Chase and Bank of America, also suspended foreclosures in those states.

Virginia, Maryland and the District were not immediately affected by the lenders' actions. But then Bank of America suspended foreclosures nationwide. Others have since selectively halted foreclosures here. And at least two area circuit courts - in Prince George's and Montgomery counties - are reviewing cases for paperwork flaws.

Under government guidelines, the failure of security-cleared workers to live within their means and pay off debt suggests poor self-control, bad judgment and an unwillingness to abide by rules, raising concerns about their ability to protect classified information.

Only a few government agencies make public their decisions to revoke or deny security clearances. Among them is the Defense Department's Office of Hearings and Appeals (DOHA), which reviews cases involving contractors for the Pentagon and about two dozen agencies, according to lawyers.

From January 2006 through June 2010, about 70 appeals involving foreclosures and other distressed sales were considered by that office, and security clearances were revoked or denied in 62 of those cases, according to Sheldon I. Cohen, an Arlington lawyer who recently wrote a paper about the rulings.

"In many cases, they act as a court of morality," Cohen said.

Based on his study of the DOHA appeals cases in the past 41/2 years, Cohen said that the number of security clearance denials and revocations has kept pace with the number of mortgage defaults, foreclosures and other distressed sales in the country.

'Emotionally charged issue'

The number of security-cleared workers who are in trouble with their loans is not public. But John P. Mahoney, a lawyer at Tully Rinckey in the District, said there is no reason to believe that these employees are insulated from the problems that plague the housing market at large.

"Now they are concerned that their clearance will be pulled or they will be fired because their real estate investments have gone bad," Mahoney said. "It's a very emotionally charged issue, because some of these people have had high-level clearances for decades and never dreamed they would face a problem like this."

Two weeks ago, Mahoney was contacted by a government contractor panicked about the payments she's missed on three investment properties she can no longer afford. She can't refinance or sell the homes because each has lost value.

The contractor, who asked not to be named for fear of losing her job, said in an interview that she has had a security clearance for more than 20 years. She is talking to Bank of America, her lender, about modifying the loans to avoid foreclosure.

"I'm hoping the freeze will work for me instead of against me," she said.

But anything that keeps her from resolving the problems leaves her in limbo. And that means it will take that much longer for her to regain her financial footing, reestablish her credit and reassure the government that she's trustworthy.

"If the foreclosure moratorium continues and she is unable to successfully modify her loans, she's left with the financial concerns that could lead to her termination," Mahoney said. He added, "Action needs to be taken, a government-wide approach, so that people who add value to the government's mission and have a long record of trusted service don't lose their jobs for no other reason than an economic downturn."

I received this yesterday from Old Navy Man. Thank you. I observed that Cheney seemed to have ties to Boeing previously. Wonder if he is/was a recipient of gratitudes through Hidden Treuhands or other secret off-shore accounts? GFS

G. Florence-

When will the taxpaying citizens get a clue? Defense contractor oversight is broken, and it is the taxpaying citizens being taken for an A-12 ride!

An Old Navy Man

DoD Buzz

Supreme Court Takes Up A-12 Case

By Colin Clark Tuesday, September 28th, 2010 5:37 pm

Posted in Air, Naval, Policy

Hard as it may be to believe, a court case that traces its roots back to the time when Dick Cheney was Defense Secretary will be considered by the Supreme Court. The case involves the A-12 fighter program, for which the government says Boeing and General Dynamics owe it almost $3 billion (including interest).The court combined cases filed by the two companies, according to the New York Times and Bloomberg. The A-12 began with a 1988 contract to build the Avenger aircraft. The Navy cancelled the contract three years later and said the companies owed it $1.35 billion.

The contractors refused to return the money and sued. The government, they said, had not shared classified technology and that led to program delays. The government used the state secrets privilege to explain why it could not present arguments in court refuting the companies claims. An appeals court ruled against the contractors.

The stakes are high for everyone in this case. Boeing has said the company could owe $1.7 billion. General Dynamics has said it may owe $805 million. And the government must defend its right to invoke the state secrets privilege, which has been an increasingly important legal principle to the government.

This is a good example of what has been going on for some time. Oversight and ability of investigation and enforcement agencies to do their duty and purposefully complete investigations and case development with an eye on prosecution and real resolution of the problems caused by the massive fraud, waste, abuse and corruption that is going on at nearly every level of government and in industry. This situation is further exacerbated by near paralysis in the area of justice, and ability or willingness to prosecute by those who should be our strongest advocates for clean up. Think about what has happened at the federal level in Department of Justice (Eric Holder). GFS

From the Sacramento Bee:

October 28, 2010

Campaigning for higher office, Los Angeles District Attorney Steve Cooley touts his crackdown on Bell city officials for alleged public corruption -- but a whistleblower says he complained more than a year before prosecutors took action.

Democrat Kamala Harris, Cooley's opponent for attorney general, accused the Republican on Thursday of dragging his feet in the Bell probe. Her campaign officials pressed the argument by releasing a letter from Cooley's office and holding a news conference featuring the whistleblower, James Corcoran, retired Bell police sergeant.

"We just want to know, very simply, why it took an election year -- and getting close to an election -- to take any action on this," said Ace Smith, Harris political consultant. "It's outrageous. ... This is basically neglect that has cost the residents of California and the people of Bell millions and millions of dollars."

Kevin Spillane, Cooley spokesman, characterized the accusations as a political stunt days before Tuesday's balloting.

"This is just political second-guessing motivated by the election, and it's coming from a losing candidate who is desperate to turn around her campaign," Spillane said.

Accusations of corruption in Bell rocked the state for months, climaxing with a September press conference in which Cooley announced dozens of charges against former Bell City Manager Robert Rizzo and seven other officials accused of misappropriating $5.5 million in public funds.

Corcoran said Thursday that Los Angeles prosecutors could have intervened long before they did, as early as April 2009, when he met for three hours with DA officials to complain about Bell improprieties.

"If (Cooley) would have taken action earlier, perhaps this thing would have taken a different direction," Corcoran said.

Corcoran said that as the April meeting ended, an investigator for the DA's Office suggested that the whistleblower ask a Bell public official to submit a letter about corruption in the city.

Bello responded in June 2009 with specifics about alleged wrongdoing by one Bell building official that ranged from accepting bribes for building permits to profiting personally by selling confiscated vendor merchandise.

"It was actionable information, things that could be and should have been followed up on," Corcoran said Thursday. "That was the last I heard from the DA's office (last year)."

In early 2010, Corcoran tried again, meeting separately with two officials from the DA's office, one of whom aggressively pursued his complaints of improprieties and that's "when this whole thing opened up," he said.

Demerjian said that Cooley was not involved in day-to-day decisions made in 2009 about the Bell case.

The probe took time to percolate, but it was not dropped in 2009, Demerjian said.

"There were numerous allegations coming in, but none of them really provided any workable leads until the early part of this year," he said.

In March, prosecutors were zeroing in on salary improprieties involving Bell city officials, Demerjian said.

Four months later, in July, the Los Angeles Times wrote a story exposing massive salaries of Bell city officials and sparking public controversy about actions by officials there.

Shortly thereafter, Cooley announced that his office had been gathering information since March and had launched a multipronged investigation into possible voter fraud and conflicts of interest involving Bell city business.

Demerjian said he did not think it was fair to accuse Cooley of fumbling the case last year.

"I believe it to be unfair, yes, but people can make of it what they wish," he said. "These kinds of things take time. We need facts which allege a crime and some kind of workable leads."

October 25, 2010

Summary: This op-ed from a former Bush administration official criticizes the Obama administration for its high-level staff revealing classified information to journalist Bob Woodward for a new book. The author points out the hypocrisy of the White House for apparently allowing this, while at the same time prosecuting other alleged government whistleblowers for revealing far less potentially damaging information.

GAP Homeland Security Director, Jesselyn Radack, blogged about the op-ed, and the serious problem of government officials over-classifying documents, in many cases simply to cover up mistakes or wrongdoing.

This was sent to me from a reader today. Well said, Mr. Schwellenbach. Thank you Old Navy Man for sending this. GFS

G. Florence-

From my own personal experience, the Department of Defense Inspectors General office is the worst offending IG in existence. But don’t take my word; look at their case track record for the past ten years. The Department of Defense IG is useless.

An Old Navy Man

POGO

October 22, 2010

Watchdogs Battle Agencies Over Access to Records

Thirteen inspectors general (IGs) described their struggles with the government agencies they oversee in letters made public this week by Republican Sens. Charles Grassley of Iowa and Tom Coburn of Oklahoma. The two senators canvassed 69 IGs earlier this year asking whether they’ve run into problems in the course of their oversight.

“Inspectors General can’t conduct effective oversight of tax dollars and programs when the very agencies subject to the oversight impose delays, red tape, and roadblocks,” Grassley said. “To let this continue in the executive branch is letting the fox decide who gets in the henhouse.”

For instance, the Treasury Department’s IG, Eric Thorson, wrote in a September 10 letter that his office “is being denied unrestricted and unfettered access to information from the Office of the Comptroller of the Currency (OCC) for use in investigations of possible fraud upon the OCC by failed financial institutions regulated by the OCC.” The OCC asserted the Right to Financial Privacy Act (RFPA) as justification for withholding info, according to Thorson. Thorson believes OCC is slanting its reading of the RFPA, and that it actually allows for Inspectors General to access this information. What it comes down to, according to Thorson, is OCC believes “it can determine the instances in which my office has investigative jurisdiction affecting OCC programs and operations.”

In another case, Stuart Bowen, the Special Inspector General for Iraq Reconstruction (SIGIR), says the State Department has dragged its feet in responding to repeated SIGIR requests for contract data. As of June, the SIGIR has been waiting over eleven months for the State Department to provide “complete data on the cost of the contract for providing trainers for the Iraqi Police Training Program” run by DynCorp International.

“Good government starts with good oversight. When officials block investigations they do nothing more than protect the people and processes that waste billions of taxpayer dollars every year,” Coburn said